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Why Aurora Cannabis Fell 10.9% in August

What happened

Shares of Aurora Cannabis(NYSE: ACB) fell 10.9% in the month of August, according to data from S&P Global Market Intelligence. Aurora is one of the leading Canadian cannabis producers -- in fact, Aurora has the highest production potential of any cannabis company in the world.

Therefore, Aurora's stock feels the heat whenever the overall cannabis sector falls out of favor. That's apparently what happened in August, as Aurora's big decline came not after any company-specific news, but rather after the earnings reports of peers Canopy Growth(NYSE: CGC) and Tilray(NASDAQ: TLRY).

Person in lab coat and stethoscope holds a marijuana leaf and small jar of cannabis.

Image source: Getty Images.

So what

In early August, Aurora actually gave preliminary revenue numbers for the quarter ended June 30, though the company won't report official earnings until Sept. 12. Aurora expects revenue between $100 million and $107 million, compared to $19.1 million a year ago and $65.1 million in the March quarter. That was enough to please analysts, which initially pushed Aurora's stock up.

However, in mid-August, Canopy Growth filed its earnings report, which missed both revenue and profit expectations by a wide margin. Tilray also delivered an earnings report that missed profit expectations, though it did beat analyst expectations for revenue. Of particular note was Tilray's reported 28% decline in average price per gram during the quarter. That may have led investors to believe that the Canadian market is oversupplied.

It was odd that Aurora's stock declined so much with its peers after it had already given quarterly revenue numbers. Nevertheless, the whole sector has been under pressure in the second half of this year. Concerns about valuation, combined with a risk-off mentality in the markets, have weighed on all cannabis producers since the spring.

Now what

Aurora officially reports fourth-quarter and full-year earnings on Sept. 12, when management will add additional color to the revenue guidance. Of note, Aurora recently won a big overseas contract in Italy in July, and also bought hemp and CBD company Hempco Food and Fiber Inc. for 63.4 million Canadian dollars in the middle of August.

Of course, the most important thing for investors to monitor is the state of supply and demand in the Canadian market, as well as the ramp-up of Aurora's industry-leading production facilities.

Billy Duberstein has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.